The announcement of a universal 10% tariff on all imports to the US, excluding the US, Mexico and Canada (USMCA) free trade agreement, did not catch market participants off guard. The scale of the reciprocal tariffs on a broad range of countries, however, did. Tariffs, by definition, increase the cost of goods sold, which leads to higher prices as companies pass on these higher costs in a bid to maintain profitability.
The most recent announcement of 50% tariffs that may or may not be imposed on European imports is an indication that some increased level of tariffs is inevitable but that tariff rates can and will change and that there will be exemptions for certain countries, industries and products and services. The 10% universal tariff, however, looks like it is here to stay. The first-order effect of the tariffs is the direct cost from tariffs on the cost of goods sold. Our financial analysis allows us to quantify it based on our assumptions. The second-order effect is the impact on the broader global economy. This could have a much bigger impact and depends on the real and perceived changes to corporate and consumer investment and spending.
Companies have now reported their first quarter results. Many reported after the US government’s tariff announcement on 2nd April. Most of our companies reported good results and positive outlooks for the year despite the tariffs. 54% of our companies have reiterated their fiscal year 2025 guidance, 12% have raised their guidance, 8% have decreased it, while the remaining holdings did not provide such guidance.
The quality companies we invest in have strong and sustainable competitive positions, in robust and growing industries, with managements that have records of value creation and strong balance sheets that they can weather any kind of adversity. The impact of tariffs on our World Stars Global Equity strategy will depend on what tariffs are actually implemented and what our companies can do to mitigate their impact. The quality of our companies allows them to be resilient and we are confident in their ability to manage their exposure, adapt to whatever tariffs are imposed, seek out opportunities to improve their business and to come out stronger than before.
Below, we provide examples of companies from different sectors that we have invested in for more than three years, how we have analysed their exposure and why we think they will be resilient. Our analysis is based on the likely 10% universal tariff but the framework can be applied to different tariffs levels, including possibly higher European tariffs.
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